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The Tax Increase Prevention and Reconciliation Act Will Open the Roth IRA Conversion Flood Gate

On May 17, 2006 , President Bush signed the Tax Increase Prevention and Reconciliation Act (H.R. 4297) into law. The one r retirement plan-related provision included in the new law will remove the eligibility requirements that are currently in place for Roth IRA conversions. Current law prohibits anyone with modified adjusted gross income in excess of $100,000 and/or a married person who files a separate tax return from converting their Traditional or SIMPLE IRAs to Roth IRAs. These eligibility requirements will be eliminated beginning in 2010. Beginning in 2010, when the eligibility requirements are lifted, anyone will be able to convert a Traditional or SIMPLE IRA to a Roth IRA. Additionally, IRA holders who convert in 2010 will have the option of including the taxable conversion amount in income ratably over two years (2011 and 2012) or including the entire amount in income in 2010.

All of the other retirement plan-related provisions which had been included in earlier versions of H.R. 4297 were stripped from the final version of the bill. However, there is talk amongst legislators that the passage of H.R. 4297 is just the first step of a two-step process, with another bill to follow. Some of the retirement plan-related provisions not included in the final version of H.R. 4297 may find their way into H.R. 2830, pension reform legislation, which is now in the conference committee negotiation stage. Legislators are still striving to reach an agreement on H.R. 2830 by their self-imposed deadline of Memorial Day.